ADVANCED ENERGY BLOG -- DAVE KARPINSKI

Shale gas supply chain: the big picture, part 2

Blog Entry: January 11, 2013 4:30 AM | Author: DAVE KARPINSKI

DAVE KARPINSKIDave Karpinski is Vice President of NorTech and Director of NorTech Energy Enterprise. He leads the organizations efforts to accelerate economic growth in Northeast Ohio's advanced energy industry and has over 20 years of private sector experience in a variety of manufacturing-related industries.

In my Dec. 4th blog post, I looked at the shale gas supply chain opportunity from the angle of those supplies and services where logistics dictate that they be locally obtained. Now, I'd like to examine the more complicated, but high potential, aspects of the supply chain for shale gas in Northeast Ohio, and the process it takes to begin the journey.

Although shale gas activity may be thriving on Ohio soil, the large exploration and production (E&P) companies often hail from states such as Oklahoma and Texas. Their suppliers, with which they often have long established relationships, often come from out of state also. The relationships are usually long established because they are trusted suppliers that help mitigate the risk and liability in what can be a dangerous field. However, that does not mean there are no opportunities for Northeast Ohio companies to provide products and services directly to the E&P companies, or as suppliers to the suppliers. The building and solidifying of these relationships can translate not only into jobs creation right here in our region, but also further export opportunities for Ohio companies down the line.

Many activities taking place in well servicing are one area that is prime for the expertise of Ohio based suppliers. Well servicing is work performed on a well to improve or maintain the production from a formation already producing, the completion of a newly drilled well or the work involved to research new production zones, and can include:

• Treatment facilities for natural gas and water

• Storage facilities

• Steel pipes, tanks, separators,

• Equipment for production and metering

• Compressors

However, becoming a supplier is not just a matter of making a connection with an E&P company and signing on the dotted line. There is a detailed process involved in attempting to become a Tier 1 supply group, which refers to any supplier or vendor who may find themselves on site (“boots on the ground”). Bill Hagstrand, Senior Consultant at NorTech, has examined the process of dealing directly with the E&P companies and breaks down some of the requirements to be considered a legitimate partner:

1) Study and properly fill out the Master Service Level (MSA) agreement, which is required by many companies. The primary purpose of the MSA is related to safety and liability. It is often lengthy, but is also a “two way” document that provides the vendor or supplier commitments as to how they will be treated.

2) Enlist the services of a vetting agency, such as an ISNetworld, to ensure that you are compliant with rules and regulations, and that your process and procedures are centrally available for potential clients.

3) Obtain API certification, which covers the ability to work with various code books and standards, including the API standards that cover the inspection, repair, and maintenance of process equipment in the oil and gas industry. Be aware, this process takes several months.

The requirements often spill down to include Tier 2 suppliers, which provide services and components to Tier 1 suppliers, and is another large opportunity for Northeast Ohio.

Our regional economic development ecosystem comes in by helping area companies not only forge connections within the oil and gas world, but also identify where the supply chain pressures and problems exist, and how potential suppliers may relieve those problems for the industry. Work is underway here in Ohio to understand the players, value chain and current buying patterns of the entire shale gas industry.

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